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Efficacy of British Bond-Buying Effort Is Questioned

By Julia Werdigier December 12, 2011 7:05 amDecember 12, 2011 7:05 am

LONDON – The Bank of England’s initial bond-buying program was less effective in lowering yields than the central bank had thought, a report by the Bank for International Settlements suggested on Monday.

The central bank’s decisions to buy £200 billion ($313 billion) of government bonds and other assets in 2009 and 2010 to increase liquidity in the credit markets pushed yields down by as much as 75 basis points, the Bank for International Settlements said in its quarterly review. The Bank of England said previously that the program would lower yields by 100 basis points, or one percentage point.

The Bank for International Settlements also said that while the early asset purchasing programs in the United States and Britain “had a significant impact on the financial markets,” the “effects became smaller for the later extensions of the programs.” That was partly because yields were already lower and because the novelty factor of the programs waned, it said in the review.

While questions remained about the effectiveness of the Bank of England asset-purchasing program, a decision to expand it by £75 billion, to £275 billion, in October was widely welcomed by the financial markets. Some economists expect the Bank of England to expand the program in the first quarter of 2012 amid fears that Britain could fall back into a recession.

Mervyn A. King, the Bank of England governor, praised the effect the asset-purchasing program had had on the economy in a speech in October.

“Our program of gilt purchases has helped large companies to reduce their reliance on the banking system and obtain finance directly from equity and corporate bond markets,” he said.